PROJECT APPRAISAL & PROJECT

SYNDICATION

Avantika

Pranavi

Bikash

Seema

Alok

Kanika

Kanupriya
SAHADE
Vallabh
V
Project Appraisal
 PROJECT APPRAISAL

Meaning and definition

Assessment of a project in terms of its economic, social and financial
viability

A lending financial institution makes an independent and objective

assessment of various aspects of an investment proposition

It is defined as taking a second look critically and carefully at a project by

a person who is in no way involved or connected with its preparation. He
is able to take independent, dispassionate and objective view of the
project in totality, along with its various components
 PROJECT APPRAISAL

Steps /Aspects of Project Appraisal

Economic Aspects

Technical Aspects

Organizational Aspects

Managerial Aspects

Financial Aspects

Market/Commercial Aspects
 PROJECT APPRAISAL

Economic Aspects
Analyses if the benefits will justify the project
cost/investment done

A successful project gives following benefits:

• Increased output
• Enhanced services
• Increased employment
• Larger government revenue
• Higher earnings
• Higher standard of living
• Increased national income
• Improved income distribution
 PROJECT APPRAISAL

Technical Aspects
Site and Location: RM supply, proximity to markets,
transportation facility, power supply, manpower, water,
government policies, labour laws, climate, taxes

Size of plant/scale of operations: Technological capacity is

standardised for achieving economies of scale, low demand
or less resource availability result in economies of scale

Technical feasibility: Technology selected, availability of

infrastructure, plant layout, project implementation
schedules etc
 PROJECT APPRAISAL

Organisational Aspects

Organisation structure, recruitment and

training aspects are studies

Appraisal done to see if project is adequately

staffed, initial recruitment is done
 PROJECT APPRAISAL

Eligibility
Promoter’s Legal
Standing Framework

Technology Market
and Design Prospect

Project

Economic +
Investment
Financial
cost
viability

Environme-
ntal Procureme
compatibili nt
-ty Time
schedule
 PROJECT APPRAISAL

Financial Aspects
Cost analysis: Finding out the cost of production

Pricing: Deciding price of the product after

considering demand, profit and competition

Financing: Raising funds and efficient use of the same

Income and Expenditure: Concerned with predicting

profit and costs involved
 PROJECT APPRAISAL

Market/Commercial Aspects

Analysis of market opportunities

Specification of marketing objectives

Planning and organising of marketing process

Controlling of implementation of marketing plan

 PROJECT APPRAISAL

What can Project Appraisal Deliver?

Project appraisal helps a partnership to

• be consistent and objective in choosing projects
• make sure its programme benefits all sections of the
community
• provide documentation to meet financial and audit
requirements and to explain decisions to local people.

Appraisal justifies spending money on a project.

• Appraisal asks fundamental questions about whether
funding is required and whether a project offers good value
for money.
 PROJECT APPRAISAL

What can Project Appraisal Deliver?

Appraisal is an important decision making tool.

• It helps ensure that projects selected for funding will help
a partnership achieve its objectives for its area are
deliverable are sustainable have sensible ways of
managing risk.

Appraisal lays the foundations for delivery.

• Appraisal helps ensure that projects will be properly
managed, by ensuring appropriate financial and
monitoring systems are in place, that there are
contingency plans to deal with risks and setting
milestones against which progress can be judged
 PROJECT APPRAISAL

Key issues in Project Appraisal

Need, targeting and objectives
Context and connections
Consultation
Options
Inputs
Outputs and outcomes
Value for money
Implementation
Risk and uncertainty
Forward strategies
Sustainability
 PROJECT APPRAISAL

Checklist
•Whether you are involved in a partnership with an appraisal system in place, or starting
to design one from scratch, these questions are worth asking.
•Are appraisals systematic and disciplined with a clear sequence of activities and
operating rules?
•Is there an independent assessment of the project by someone who has not been
involved with the development of the project?
•Does the appraisal process culminate in clear recommendations that inform approval (or
rejection) of the project?
•Is the approval stage clearly separate?
•Is the appraisal process well documented, with key documents signed, showing
ownership and agreement, and allowing the appraisal documentation to act as a basis for
future management, monitoring and evaluation?
•Does the appraisal system comply with any relevant government guidance (See the
information section for further details)?
•Are the right people involved at various stages of the process and, if necessary, how can
you widen involvement? (Here, you may also want to look at other topics, such as
building a partnership, or community involvement.)
•Does your system enable the key components of successful project appraisal
(summarised above) to be considered within a balanced appraisal of a project as a
whole?
Raliway project appraisal Group (European
Union)
 PROJECT APPRAISAL

Key factors
Screening Process
• Check that all individual projects
• Identify the broad performance of the
projects
• Ensure that, for demand-driven
projects, the effects on the users
• Ensure that benefits are not dependent
on complementary projects
 PROJECT APPRAISAL

Key factors

Establishing the appraisal context

• Technical aspects
• Regulatory aspects
• Economic, social and political aspects

Traffic forecasting
• Demand analysis and forecasting
 PROJECT APPRAISAL

Definition of alternatives
Environmental, Safety, Cohesion
effects
Systemic View

Financial Analysis, Cost benefit

 PROJECT APPRAISAL

Approach to project Appraisal

Ensuring the quality of cost-benefit analysis

Presenting re-distribution impact

Systemic View
 PROJECT APPRAISAL

National Roads Authority

Appraisal Stage
Overall Project
Definition Planning
of alternatives

Route Selection

Preliminary Design/Land Acquisition

Construction Documents Preparation &
Tender Award
 PROJECT APPRAISAL

National Roads Authority

Evaluation Phase
Final Account/Closeout
Project Syndication
 PROJECT SYNDICATION

Meaning and Definition

A syndicated facility is a lending facility,

defined by a single loan agreement, in
which several or many banks participate.
 PROJECT SYNDICATION

WHEN IS IT THE RIGHT

SOLUTION?
A borrower wants to raise a relatively large
amount of money quickly and conveniently.

The amount exceeds the exposure limits or

appetite of any one lender.

The borrower does not want to deal with a

large number of lenders.
 PROJECT SYNDICATION

Roles within the syndication process

Arranger / lead manager

• The bank that:
• Is awarded the mandate by the prospective
borrower, and
• Is responsible for placing the syndicated loan
with other banks and ensuring that the
syndication is fully subscribed.
• Arrangement fee
• Reputation risk
 PROJECT SYNDICATION

Roles within the syndication process

Underwriting bank
• The bank that commits to supplying the funds
to the borrower -if necessary from its own
resources if the loan is not fully subscribed.
• May be the arranging bank or another bank.
• Not all syndicated loans are fully underwritten.
• Risk: the loan may not be fully subscribed.
 PROJECT SYNDICATION

Roles within the syndication process

Participating bank
• The bank that participates in the syndication by
lending a portion of the total amount required.
• interest and participation fee.
• Risks:
• borrower credit risk (as normal loans).
• A participating bank may be led into passive
approval and complacency (i.e. so many high
profile banks cannot be wrong!).
 PROJECT SYNDICATION

Roles within the syndication process

Facility manager / agent

• The one that takes care of the administrative
arrangements over the term of the loan (E.g.
Disbursements, repayments, compliance).
• Acts for the banks.
• May be the arranging/underwriting bank.
• In larger syndications co-arranger and co-
manager may be used.
• Access to lending opportunities with low marketing costs.
• Opportunities to participate in future syndications. Bank:
• In case the borrower runs into difficulties, particpant banks have equal treatment. Participating
• Participant banks do not find themselves at a disadvantage vis-ά-vis a dominat
bank or one with high leverage over the client.
• Good arrangement and other fees can be earned without committing capital.
• Enhancement of bank’s reputation.
Lead Banks:
• Ehnancement of bank’s relationship with the client
• Deals with a single bank.
•
Borrower:
Quicker and simpler than other ways of raising capital (e.G. Issue of bonds or
equity).
Benefits
PROJECT SYNDICATION
 PROJECT SYNDICATION

Stages

PRE-MANDATE PHASE
• The prospective borrower may liaise with a single bank or
it may invite competitive bids from a number of banks.
• The lead bank needs to:
• Identify the needs of the borrower.
• Design an appropriate loan structure.
• Develop a persuasive credit proposal.
• Obtain internal approval.

MILESTONE: AWARD OF THE MANDATE.

 PROJECT SYNDICATION

Stages
Placing the loan
• The lead bank can start to sell the loan in the marketplace.
• The lead bank needs to:
• Prepare an information memorandum
• Prepare a term sheet
• Prepare legal documentation
• Approach selected banks and invite participation
• Negotiations with the borrower may be needed if prospective
participants raise concerns.

Milestone: closing of the syndication, including signing.

 PROJECT SYNDICATION

Stages

POST-CLOSURE PHASE
• The agent now handles the day-
to-day running of the loan facility.
 PROJECT SYNDICATION

pricing
Fees for “front-end activities”-arrangement and
underwriting fees.

Interest (margin over base rate).

Commitment fees for available but undrawn funds.

Agency fees -payable for administrative activity during

the term of the loan.
 PROJECT SYNDICATION

documentation

Specialist lawyers working closely with all

the banks.

The role of each party is clearly defined.

Some standard clauses are included

 PROJECT SYNDICATION

Market and competition

Syndications in Cyprus are formed for the development of
big projects and for refinancing purposes.

Examples:
• Aphrodite hills -cyp30m -arranger/agent: HSBC.
• Take over of the shares of Hilton hotel by Louis group -cyp16m
-arranger/agent: HSBC.
• Take over of ROCL shares by Louis -usd30m -agent/arranger: HSBC.
• Acquisition of the vessel emerald by Louis -usd20m -arranger: HSBC
-agent: Societe Generale
• Construction of Elysium beach resort -arranger/agent: Cyprus popular
bank.
 PROJECT SYNDICATION

EXAMPLE

Tata Steel's lending syndicate is led by Citigroup Inc, Royal

Bank Group PLC and LN Standard Charted Bank.

As part of the package, Tata Steel has invested GBP 425

million in Tata Steel UK in a phased manner.

Of which around GBP 200 million will be used to prepay

debt and de-leverage the balance sheet.
 PROJECT SYNDICATION

EXAMPLE

In 2005 Reliance Port and Terminal, a subsidiary of Reliance

Industries, has raised loan for expanding its port facility (Rs 42 billion)
to increase imports of crude oil by Reliance Petrochemicals, from 33
million tones to around 66 million tones. A total of 20 banks
syndicated the loan with the security trustee being the UTI Bank.

Similarly, Indian Rayon raised Rs 750 crore to acquire 50 per cent of

AT&T's stake in Idea Cellular. The balance of the AT&T stake, valued at
Rs 1,500 crore (Rs 15 billion), will be picked up by the Tatas.

The same applied for a loan syndication of Rs 5,000 crore (Rs 50

billion) for Hindalco a few years back and for Rs 1,000 crore (Rs 10
billion) for Bhushan Steel.
Thank You